C S P October 2013104

How brewpubs and tasting rooms are redefi ning the beer market, and what we can learn from their success

By Melissa Vonder Haar and Angel Abcede mvonderhaar@cspnet.com, aabcede@cspnet.com

Holy

[competitive watch]

HolyCraft!

C S P October 2013 105

Once people go outside

from the macro and

drink something with

the intention of being

fresh and not consumed

in mass quantities,

they’re not going to go

back.

“Once people go “Once people go

““

e’re gonna need a

bigger boat.”

This is what, in a CSP column earlier

this year, one former Anheuser-Busch

employee and current beer connoisseur

predicted c-store retailers would need to

accommodate the increasingly successful

craft beer segment.

It’s a success that the numbers clearly

support. “Last year craft brewers grew

15% by volume, having sold more than

13 million barrels,” says Jennifer Litz, who

covers craft beers for Beer Business Daily.

“Craft reached a 6.5% volume share and a

10.2% dollar share during the same time.”

Yet during that same time, craft

accounted for only 2% of convenience-

store beer sales. Perhaps some retailers

are indeed strapped for space to stock

both the c-store standard brands and

the dizzying number of craft and local

options. Perhaps others feel it’s not worth

the space, anticipating a burst in the craft-

beer bubble. Either way, those closest to

the craft scene warn it’s a subsegment

that’s not going away.

“Contrary to what some people are

saying, we are not in a bubble,” Brewers

Association president Charlie Papazian

said at the April 2012 Craft Brewers Con-

ference. “We are knee-deep in foam, and

the level is rising.”

Though the number of breweries in

the United States dipped to fewer than

100 in the 1980s, the Brewers Association

reports there were a record 2,538 U.S.

breweries as of June 20—with nearly

2,500 designated under the label of craft.

And 1,605 breweries are already in the

planning stages.

Of those craft breweries bursting onto

the scene, most belong to a segment that

historically would not be considered

competition—or as an opportunity—for

the c-store industry: the brewpub.

“Brewpubs are restaurant-breweries

that sell 25% or more of their beer on

site,” says Litz. “Of last year’s 2,347 total

craft breweries, 1,132 were brewpubs.”

The majority of these brewpubs have

centered their business model on the

simple concept of a tasting room, pro-

viding consumers great, fresh beer offer-

ings from knowledgeable employees in a

unique setting.

It’s a concept that has worked well

for a number of brewpubs, as well as

for brewers who technically fall into the

category of a microbrewery or regional

brewery, but who have recognized the

power of the tasting-room model. Not

only does it allow consumers to sample

fresh products, but it also draws a variety

of new beer drinkers into the segment.

“They can be from anywhere; they

don’t have to be rich. People want to

drink something that tastes good,” says

Eric Kapraun, cultural coordinator for

Chicago’s Half Acre Beer Co. “I think

once people go outside from the macro

and drink something with the intention

of being fresh and not consumed in mass

quantities, they’re not going to go back.”

So space limitations or not, it’s impor-

tant for c-store retailers to at least sample

what the local craft segment is brewing up.

Craft AppealAccording to the Brewers Association, the

craft segment is broken down into three

technical categories: Microbreweries

that produce 15,000 barrels a year or less,

regional breweries that produce 15,000

to 6 million barrels a year, and the previ-

ously described brewpubs. These defi-

nitions can get confusing, especially as

larger brewers invest in unoffi cial brew-

pubs (at least by the Brewers Association’s

defi nition) or brewpubs increase capacity,

technically becoming microbreweries or

even regional breweries.

Dogfish Head Brewery is just one

of many examples. Founded in 1995

as Dogfish Head Brewings and Eats in

Rehoboth Beach, Del., it was the state’s

very fi rst brewpub and had the capacity

to brew only 12 gallons of beer at a time.

The company has now grown into one of

the most popular regional breweries in

the country, with a 75,000-gallon-a-year

capacity and three more beer-centered

restaurants (branded as Dogfish Head

Alehouses) located in neighboring states.

“The demand for products these

brewpubs generate via on-premise

brand building should only strengthen

off-premise sales for craft in general, with

the rise of beer tourism and the locavore

movement,” Litz says.

“I see great things from craft brewers

and brewpubs,” adds Bump Williams,

president of Stratford, Conn.-based

Bump Williams Consulting Co., a fre-

quent adviser to craft brewers. “They have

worked hard to bring new beer drinkers

into their segment, they have actually

increased the frequency at which people

sample craft beer, and they have increased

the volume per shopping occasion for

craft beer. These three things are the only

tried-and-true way to build a business.”

Perhaps out of a desire to bring new

“W

C S P October 2013 107

drinkers into the segment, craft brewers

have demonstrated an ability to set aside

rivalries and work toward the common

goal of providing beer drinkers with a

bevy of high-quality options. This kind of

team spirit has allowed for an impressive

number of operators to thrive in brew-

ery-dense states such as Colorado, which

The Beer Institute ranked No. 1 in terms

of gross beer production and comes in

fifth in terms of breweries-per-capita,

according to the Brewers Association.

“It’s a competitive environment, but

also a very collaborative environment,

especially here in Colorado,” says Steve

Kaczeus, who opened Bootstrap Brewing

of Niwot, Colo., in June 2012. “If I’m low

on hops or grains, I know I can call any

number of brewers in the area and they’re

happy to help me out. Likewise, when we

started bottling, an avid brewer let us use

his labeling machine when he heard we

were doing it by hand.”

Kapraun of Half Acre agreed: “It’s not

super-competitive; all the breweries get

along. The more people like good beer,

the more we’re selling out of what we

make.”

A Fresh ExperienceWhile companies such as Bootstrap have

benefited from operating in a brewery-

heavy location, others are finding suc-

cess by bringing the craft movement to

uncharted territories. When Half Acre’s

founder, Gabriel Magliaro, moved from

Colorado’s beer mecca to Chicago, he

quickly took note of the lack of local beer.

“There was only Goose Island within

the city and Two Brothers out in the sub-

urbs, but almost no smaller craft brewer-

ies in the city,” says Kapraun. “Basically, it

was an empty market, and this is one of

the biggest cities in the country.”

Started out of a spare bedroom in

2006, Half Acre now boasts a retail store

and taproom, producing nearly 15,000

barrels per year.

“It’s far exceeded expectations,”

Kapraun says, pointing out that he

expected to take another five years to hit

the 15,000 mark. “It grew more rapidly

than we thought.”

Such growth is understandable for

a metropolis such as Chicago. But what

about a city where “big brewing” has

reigned supreme for more than a century?

“St. Louis is certainly a beer and base-

ball town,” admits Kevin Lemp, president

of the recently opened Four Hands Brew-

ery in St. Louis. “I don’t think that will

ever change.”

However, even St. Louis drinkers are

apparently willing to explore the craft

movement. Located less than 2 miles

from Anheuser-Busch, Four Hands has

had no problem tempting locals to the

craft side with options such as Prunus

Saison, a cherry seasonal that landed on

Draft Magazine’s Top 25 Beers of 2012

list; and Smoked Pigasus, a collaboration

with a local barbecue joint that includes

malts smoked in the restaurant’s meat

smoker.

“The community has been very recep-

tive to our brand,” Lemp says. “I believe

they appreciate our creativeness and our

passion for the city.”

In many ways, the craft-beer move-

ment is part of a larger trend toward

high-end local products across the board.

From farm-to-table dining to commu-

nity-supported agriculture groups (CSA)

and farmers’ markets, consumers across

the country are showing a willingness

Creative Minds: Developing a story behind each Half Acre beer line through label design and blog entries stirs fantasies and elevates the product from commodity to customer experience.

C S P October 2013108

to spend more in exchange for quality,

locally produced goods. Beer is no excep-

tion.

“That consumer wants to know and

understand the product they are enjoy-

ing,” says Lemp. “They become passionate

about the brewing process. They want to

know more about the farm that raised

what is now on their plate.”

Many brewers recognize the power

of this consumer base and cater beers

toward the fresh “foodie” crowd.

One of Half Acre’s beers is called

Sticky Fat, named after a fictitious bear

that “comes out of the mountains every

year to eat the fresh hops off the vine,”

Kapraun says. Half Acre brews Sticky

Fat only once a year, when it can get the

freshest possible hops from the Pacific

Northwest or Michigan. “The hops are

picked on a Tuesday, and we’re brewing

on a Wednesday,” he says.

The result is a crowd that flocks to

tasting rooms such as Half Acre’s to enjoy

a freshly brewed draft, surrounded by

other beer enthusiasts and the brewers

behind the beers. It hits on yet another

unique aspect of these brewpubs and

microbrewers: the appeal of the tasting

room.

“I believe we are able to capture such

a great clientele at our tasting room

because of the experience we offer,” says

Lemp. “We offer a very inviting space with

passionate team members behind the bar,

a 2-foot-by-20-foot window looking into

the brewery, and food that pairs great

with our beer. There is something fun

about drinking a beer 20 feet from where

it was made.”

A key highlight of these tasting rooms

is the passionate and often colorful indi-

viduals serving up the suds. Whether it’s

the brewmaster or a part-timer behind

the bar, the craft-brewing movement

seems to have perfected the hiring process

to ensure a personable expert is serving

their clientele.

“The personal interaction with the

drinker and the tasting-room servers

is an awesome personal relationship

where stories are swapped, questions

are answered, appetites are whetted and

loyalties take root,” says Williams.

This combination of local, quality beer,

a fun environment to sample it in and

knowledgeable pourers has helped expand

the business of countless craft brewers.

“The retail store opened in August

2009 as a place where people could not

only interact with the people who brew

beer and run the company but also get

the ‘freshest beer possible,’ ” says Kapraun.

“I think that’s what made this company

successful … being able to interact with

people who work here.”

Untapped PotentialWith all it has going for it, the craft move-

ment has plenty of room to grow. And

it is.

Litz of Beer Business Daily says, “Amer-

ica’s 1,132 brewpubs were up 7.25% in

2012; 1,118 microbreweries were up 33%,

and a lot of companies in this bracket

are doubling in size every year. The 97

regional craft breweries were up 13%.”

And as great as the tasting room

experience is, it’s the expansion into bar,

restaurant and off-premise accounts that

has allowed the craft movement to thrive.

“The majority of our consumption is

done outside of the brewery,” Lemp says.

“Our tasting room represents about 10%

of our total sales.”

This transition to wider distribution

is one that has happened much more

rapidly than many brewers anticipated,

further proving the power of the craft

consumer.

“Distributing to other accounts wasn’t

something we had planned to do right

away,” says Kaczeus. “But within weeks

Sample Here or at Home: Many tasting rooms—such as this St. Louis Four Hands location—offer customers take-home options such as growlers and specialty bottles.

C S P October 2013110

of opening, I had restaurant guys in here

leaving their cards so they could bring

Bootstrap into their locations.”

Likewise, less than two years since

opening, Four Hands went from focus-

ing only on draft beer, with a capacity

of just over 1,500 barrels per year, to an

8,000-barrel-per-year (and growing)

capacity, with 22-ounce bottles of their

core line and plans for 12-ounce four-

packs. The bottled products came about

largely to meet growing demand from a

variety of markets.

“We currently have over 250 on-prem-

ise customers carrying our brand in the

State of Missouri and roughly 100 off-

premise accounts; this number continues

to grow every month,” and the brewery

also has distribution in metro Illinois and

Philadelphia, Kaczeus says.

It’s this expansion outside of the tap-

room and brewpubs that c-store retailers

should take note of. While the convenience

channel may not be able to duplicate the

full experience of these tasting rooms, they

can offer craft consumers a convenient

way to bring that experience home.

“C-store chains from Circle K to

ampm are generally adding more craft—

full doors or even growler stations, in

the case of Sunoco—as a way to bring

in a new consumer and make up for

domestic-premium losses,” says Litz.

Williams sees growlers as a great

option for off-premise retailers to rep-

licate some of the tasting-room experi-

ence, saying, “Nothing tastes better than a

freshly brewed and well-poured draught

beer. It allows me to bring the brewpub

home with me and savor the drinking

experience all over again, any time, day

or night.”

Still, he’s quick to warn that a growler

program is certainly not for every retailer.

Some states have legal restrictions, and

there’s a signifi cant amount of work (and

cost) that needs to go into successfully

implementing a growler bar.

“But for those states where it’s legal,

where the retailers have implemented

a strict quality-control procedure and

have a well-educated and knowledgeable

staff who can talk to shoppers, it’s a great

way to generate trial, traffi c and higher

market-basket rings,” says Williams.

Growlers aside, craft is quickly prov-

ing to be a segment ripe with potential for

c-store retailers: a growing, loyal, high-

spending consumer base that has often

been limited in off-premise options.

“As the volume of beer coming out

of taprooms and brewpubs continues

to rise, share of craft in the off-premise

channels of c-stores, grocery and others

continues to climb,” Litz says.

It may be worth getting that bigger

boat to accommodate this segment. Why

surrender such an opportunity to gro-

cery, liquor or drug? ■

The demand for products these

brewpubs generate via on-premise

brand building should only

strengthen off-premise sales for

craft in general.”

“The “The